Inexplicable disadvantages of conceptual framework ( cf) Conceptual Framework (CF) is a coherent system of inter-related objectives and fundamentals followed in financial accounting and financial reporting. It leads to consistent standards of accounting and prescribes the scopes and limitations of the same. CF was developed mainly in accounting practices. CF can act as a standard setting procedure and can be used to resolve disputes. CF helps to set the standard to build acceptable practices of preparing and presenting accounting information.
Accounting Practices in UK and USA Various countries have their own conceptual framework for their accounting and financial services. In USA, for instance, the idea of CF started in 1940s. The Financial Accounting Standards Board (FASB) is the organization which has created the most advanced CF in the world. In the UK, the Committee on Corporate Report (1975) concluded that all companies must conform to certain a number of specific characteristics of financial accounting. The Dearing Report (1987) and the Solomon’s Report (1988) harped on the importance of following a standard accounting principle for all the companies. Currently, the Financial Reporting Council (FRC) is UK and Republic of Ireland’s independent regulator responsible for maintaining a standard of accounting practices.
Limitations of Conceptual Framework Conceptual Framework definitely sets the standards for accounting practices and principles. There are, however, some limitations:
First, it is very difficult to set up. Countries which are rich and developed can have their conceptual framework but poor and developing nations can find it expensive and time consuming Secondly, CFs while providing the standard for accounting practices may lead to rigidity. It may be difficult to bring forward new ideas. Thirdly, conflict may arise between CF and the accounting standards followed prior to the introduction of Conceptual Framework. Finally, Conceptual Framework may not be acceptable to every party. It may only benefit only some interested groups identified as users.
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